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In 1982, my grandfather responded to a letter from “Dave,” asking him to dispense some of his knowledge on monetary matters (Part 1, Part 2, Part 3). After wrapping up his discussion on life insurance, he concluded with some advice on helping children with college expenses.

Don’t buy burial insurance, for your wife, your children or yourself. Invest the money instead. Don’t buy insurance on the life of your children. They’re going to live. Gamble on it. Invest the money instead. Why share the profit with the insurance company? Don’t buy an endowment policy to cover college expenses. Invest the money instead.

Here is as good a place as any to cover the matter of sending your children to college. Don’t. Let them go on their own. And be sure they pay their own way. Does that sound cruel? It isn’t. It’s for their own good. And yours. The college expense of children is not a proper expense for parents.

Most anyone will accept a dole, whether they need it or not. Young people need the discipline, the rigor and the experience of working for what they want . . . and to be willing to pay the price. The Biblical principle is, “no work, no eat . . . no work, no get.” If a young person is to go to college he needs to know the purpose for which he is going, the conviction that he needs what he’s after, and the gumption to work for it. To have a college education handed to one on a platter is a misuse of funds. If the young person is truly purposeful in his desire to go to college and is willing to work for it he is then entitled to a little help along the way, if necessary. Just make sure that ANY assistance he gets always comes as a surprise. He should never get help if he expects it.

In 1982, my grandfather responded to a letter from “Dave,” asking him to dispense some of his knowledge on monetary matters (Dear Dave – Part 1). The following discourse on life insurance is a portion of his response.

Life insurance should be put in the same category as appendectomies and borrowing money. Really. There can come a time in a man’s life when there is nothing more important than an appendectomy. And he’d better get it, pronto. But that being true doesn’t mean you should go digging about in the same spot over and over again. Borrowing money also can be the very thing to do in some certain circumstances. But it doesn’t follow therefore that one should borrow as much and as often as possible.

An appendectomy is not intended for the man who is without ailment. It is a sick man’s solution to a very real problem. And borrowing money is not intended for all men on any occasion. It is sometimes the right solution for the man who lacks funds for an important transaction.

So insurance. The American public has been sold down the river on insurance. We’ve been led to believe that all men should have as much life insurance as they can afford . . . the more, the better. Not so. Life insurance is the poor man’s way of solving a problem. And poor men have poor ways, as do some men who are not so poor. When you buy life insurance you’re gambling on death. You’re gambling you will die before the actuarial tables say you will. And the insurance company is gambling you will die on that date (on the average). The insurance company has the best gamble.

Just as we should restrict appendectomies to absolute necessities and the borrowing of money to justifiable needs, so we should keep life insurance to a minimum. If you need an appendectomy, get it. If borrowing money is really the best solution, by proper means, borrow. If life insurance is the right answer (and sometimes it is) don’t buy the wrong kind. And don’t go hog wild. There’s a better way to invest money, Just like buying coffins . . . that’s the last thing I want to do. But there does come a time when a man must do that which is less than the best.

And remember this . . . whatever you do in the matter of life insurance should always be done in light of what you are doing in the areas of savings and investments. Each has a bearing on the other. Note that I said “savings and investments.” They are not the same. They are two different animals. Both are important. And all men (almost without exception) should have both.

In 1982, my grandfather responded to a letter from “Dave,” asking him to dispense some of his knowledge on monetary matters. In upcoming posts, I will share portions of my grandfather’s response. Here’s the intro:

February 5, 1982

Dear Dave,

From time to time a number of folk have suggested that I reduce to writing some of my views about money. The idea appealed to me, but I have always questioned my ability to produce quality material, from the standpoint of both content and expression. I’m no expert in money or writing.

However, your letter (with a $10 bill) has sort of put me on the spot. I can’t accept the $10 lest I then be under obligation to give value received. But neither can I just return the money and say, “Sorry, no dice.” At the very least, I ought to be willing to put some of my ideas on paper for a friend. So . . . here goes.

In order to answer this question, it’s probably necessary to first identify the purpose of insurance. As I understand it, the purpose of insurance is to protect against catastrophic events resulting in costs that you (or your loved ones) could not afford to pay on your own. Perhaps some would define it differently, and no doubt there are varying opinions about what constitutes catastrophe and what is considered “affordable.”

To some extent, I see the insurance industry as purely a middle-class phenomenon. Poor people can’t afford to buy insurance, and rich people don’t really need insurance because they can cover pretty much any expense without it. However, as a member of the middle-class, I feel a responsibility to take prudent measures to protect the resources with which God has blessed me. However, sometimes it’s not clear when insurance ceases to be protection, and becomes a bet that’s not in your favor. Let’s look at some common types of insurance and evaluate the necessity of each.

Given the high cost of medical care, most people would be devastated if they contracted a critical disease, were in a serious accident, or were plagued by ongoing illness. Therefore, some type of health insurance is a good idea. My employer provides a good plan and pays for a large portion of it, so I don’t have any reservations about this one.

Every state that I know of requires liability insurance in order to drive legally, and most people could not afford to pay the bodily injury costs if they caused an accident, or the property damage if they run into someone’s Rolls Royce. Collision and Comprehensive is where it gets a little fuzzy; there comes a point where they just aren’t worth it. There’s no sense in paying for collision and comprehensive on a rusty old beater. Where do you draw the line though? Right now I carry both collision and comprehensive on my car and motorcycle. Once I’m comfortable on my bike, I’ll probably drop the collision and comprehensive on it, because if something happened to it, it would not be catastrophic. Even on my car, it would put a big hole in my savings if I totalled it, but I could still afford to replace it without insurance.

Home InsurancePurpose: Pay for property damage related to natural disasters.

Banks require home insurance in order to give you a mortgage, but even if you own your home outright, most people don’t have enough cash to replace their home if it were destroyed, so home insurance is a worthwhile means of protection.

Life InsurancePurpose: Pay for burial expenses when someone dies, and provide living expenses for survivor(s)

Since I’m not married, I don’t have any additional life insurance beyond what is provided to me at no cost through my employer. When (if?) I do get married, I don’t see the point in a large policy. My goal is to save enough so that my family is cared for without needing to rely on life insurance. A reasonable term-life policy can provide a cushion until adequate savings are available.

Long-term Disability InsurancePurpose: Provide continued income in the case of a long-term disability.

This is one that I don’t currently have, but I’m thinking I probably should add. The income we make over a lifetime is much, much more than the $20,000 car or $100,000 house that we insure. It makes some sense to insure our livelihood against a disability that would prevent us from working.